INVESTMENT PATTERN AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS

Abstract

Through the examination of important metrics such total investment, non-performing loan ratio, capital adequacy ratio, cash reserve ratio, credit-deposit ratio, and profitability (ROA and ROE), this research sought to assess the financial performance of Nepalese commercial banks. The research also aimed to investigate the connections between these factors and how they affect profitability. Descriptive and causal comparative methods were both used in a mixed study design. As of January 2024, there were twenty commercial banks in Nepal; a representative sample of five institutions was chosen using stratified sampling. We used secondary data from Nepal Rastra Bank and the stock market board publications, as well as balance statements, profit and loss accounts, and annual reports. Data analysis included the use of inferential methods like multiple regression analysis and correlation as well as descriptive statistics like mean and standard deviation. The results showed that there were notable differences in the financial performance metrics amongst the banks in the sample. Increases in non-performing loan levels were shown to have a negative impact on profitability, whereas effective overall investment management had a favorable impact on ROE and ROA. To guarantee financial stability and profitability, the cash reserve ratio and the capital adequacy ratio were also essential. According to the study's findings, profitable operations are adversely affected by non-performing loans, while financial performance is improved by prudent investment management and sufficient levels of capital and liquidity. These results highlight the significance of good financial management techniques in the banking industry and are consistent with previous research. The ramifications of the research are complex. From a practical standpoint, this highlights the need of better credit risk management and investment methods in order to increase profitability. In theory, it adds to the corpus of information already available on bank performance, especially when it comes to Nepalese banks.